Part 1 Study Unit 7 Review

Jim Clemons, CMA

SU 7.6 Overhead VariancesTotal Overhead Variance consists of four variances.-Total Variable overhead variances = flexible budget variance

-Spending variance – difference between actual variable overhead and (budgeted application rate x the actual amount of input)-Variance is favorable if actual production spending < std spending-Efficiency variance – budgeted application rate times the difference between the actual input and the standard input allowed for actual output.

-Total Fixed overhead variances-Spending Variances – difference between actual fixed overhead and the amount budgeted. Same as fixed overhead flexible budget variance. The fixed overhead is the same over the relevant range of output.-Production volume variance – (Idle capacity variance) difference between budgeted fixed overhead and the product of the budgeted application rate and the standard input allowed for the actual output.

• Problem 7.7Standard Costs Actual Costs

Direct Material 600,000 units of materials at $2.00 each 700,000 units at $1.90

Direct Labor 60,000 hours allowed for actual output at $7 per hour

65,000 hours at $7.20

Overhead $8.00 per direct labor hour on normal capacity of 50,000 direct labor hours:

$6.00 for variable overhead$2.00 for fixed overhead

$396,000 variable$130,000 fixed

• Problem 7.7 – Calculate the following:

• 1) Material Price Variance AQ x (SP-AP)• 2) Material Quantity Variance (SQ-AQ) x SP• 3) Labor Rate Variance AQ x (SP-AP)• 4) Labor Efficiency Variance (SQ-AQ) x SP• 5) Variable Overhead Spending Variance (AQxSP)-AC• 6) Variable Overhead Efficiency Variance(SQ-AQ)xSP• 7) Fixed Overhead Spending Variance

– Flexible/Static budget – Actual costs incurred

• 8) Fixed Overhead Efficiency Variance– (Std hours allowed for actual outputs x Std rate) x

Flexible/Static budget